Special Committee on the Companies (No. 2) Bill, 1987 debate -
Tuesday, 5 Dec 1989

SECTION 31.

Section 31 deleted.

NEW SECTIONS.

Mr. Leyden

I move amendment No. 37:

In page 32, before section 32, to insert the following new section:

"32.—(1) Section 31 shall not prohibit a company from entering into an arrangement with a director or a person connected with a director if—

(a) the value of the arrangement, and

(b) the total amount outstanding under any other arrangements entered into by the company with any director of the company, or any person connected with a director,

together, is less than ten per cent of the company's relevant assets.

(2) For the purposes of this section—

(a) a company enters an arrangement with a person if it makes a loan or quasi-loan to, or enters into a credit transaction as creditor for, that person, and

(b) the amount of a company's relevant assets shall be determined in accordance with section 28 (2).".

Mr. S. Barrett

Could I ask the Minister to have a look again at the substitution of the sums that were previously specified and now being replaced by 10 per cent of the company's relevant assets? I really believe, in the spirit in which the Minister made the final comment in relation to section 30, that if you go into the marketplace and discuss this issue with people you will find that it could become a bit of a joke. It will have no bearing on one company against another. You can find that companies that have a very healthy cash balance will be, perhaps, prejudiced by this particular limit as against companies that have, on paper, apparent assets which would be of no great benefit to the company itself at the time. I do not have an immediate solution to the problem. I understand that the Minister was trying to replace something bad with something better, but I am not satisfied that that is the best solution. What I am asking is that perhaps we leave this option open for Report Stage, to make certain that we are taking the right line. I am still not happy.

Chairman

I will take note of Deputy Barrett's concern again in relation to that amendment. The amendment has been discussed already with amendment No. 22 and it should be noted by Deputies that when we group amendments together, the procedure is that they are discussed with that amendment and that grouping, and we then, on the basis that it has already been discussed, proceed to put the question. That is the procedure that is being adopted. I am prepared to allow a small bit of latitude where, in Deputy Barrett's case, he expresses a concern for the Minister to consider on Report Stage. I am not agreeable nor is it for the proper running of the committee that we open up a discussion again on individual amendments that have already been grouped. I would hope that the members would accept that ruling as being the only way in which we can proceed at all.

If the Minister wants to reply to Deputy Barrett, I will allow him reply before I put the question.

Mr. Carey

I just want to ask a specific question about that. Speakers, when this amendment was discussed originally, asked on what basis the 10 per cent figure arose but we did not get a reply from the Minister. Just out of courtesy alone to the committee, I would like to know the basis of the 10 per cent rate. That information should have been given.

Chairman

I will accept that. The point I would make is that it would be possible for you to ask that question again under discussion of the section. We are dealing with the amendment here which is part of the section. I will have to put the section in full when it comes to that stage. There is no problem with discussing the section. I would ask if you would allow us to proceed on that basis now and you can put these questions when we are putting the section itself. I will allow the Minister to reply in this case. Discussion in future, in relation to amendments that have already been grouped, can be put when we are discussing the section. It is the only way we can proceed.

Mr. Leyden

This has been fully discussed, as the committee is aware, but in response to the questions put forward in relation to the percentage, we are satisfied that 10 per cent is the right percentage. But the Minister actually has power by order to amend this limit at a particular time. So there is flexibility, Chairman, in this particular percentage in the future, if it is found it is not a workable percentage. We have actually checked this out in the Department since the contributions were made last week on this Bill. I am very satisfied in fact. I was at the Second Stage of this Bill in the House when this was being discussed and, like Deputy Carey and Deputy Barrett, I was also interested to know the circumstances surrounding this section. At one stage I think £2,500 was the actual amount stated in the original Bill and this has been changed to 10 per cent, which I think is reasonable. It safeguards the actual viability of the companies involved and it can be amended, upwards or downwards, as the Minister considers appropriate in the light of the working of this Bill.

Amendment put and agreed to.

Mr. Leyden

I move amendment No. 38:

In page 32, before section 32, to insert the following new section:

"33.—Where a company is a member of a group of companies, consisting of a holding company and its subsidiaries, section 31 shall not prohibit that company from—

(a) making a loan or quasi-loan to another member of that group; or

(b) entering into a guarantee or providing any security in connection with a loan or quasi-loan made by any person to another member of the group;

by reason only that a director of one member of the group is associated with another.".

Mr. O'Dea

If I can just make an observation, I think there is a mistake in this amendment. The amendment is about inter-company loans within the same group. Paragraph (b) prevents a company from entering into a guarantee or providing any security in connection with a loan or quasi-loan made by any person to another member of the group by reason only that a director of one member of the group is associated with another. That term "associated" comes from the old section 25, the original definition of connected persons, which we have got rid of. I do not know of any place else in the Bill where the term "associated" now appears. Consequently the term "associated" is not defined.

Mr. Leyden

I think Deputy O'Dea is correct and in fact on Report Stage we will come back, with the committee's permision, with a refined amendment on this section. I would recommend the committee to accept this amendment at this stage.

Amendment agreed to.

Mr. Leyden

I move amendment No. 39:

In page 32, before section 32, to insert the following new section:

"34.—Section 31 shall not prohibit a company from—

(a) making a loan or quasi-loan to its holding company or entering into a guarantee or providing any security in connection with a loan or quasi-loan made by any person to its holding company;

(b) entering into a credit transaction as creditor for its holding company or entering into a guarantee or providing any security in connection with any credit transaction made by any other person for its holding company".

Amendment agreed to.

Mr. Leyden

I move amendment No. 40:

In page 32, before section 32, to insert the following new section:

"35.—(1) Section 31 shall not prohibit a company from doing anything to provide any of its directors with funds to meet vouched expenditure properly incurred or to be incurred by him for the purposes of the company or the purpose of enabling him properly to perform his duties as an officer of the company or doing anything to enable any of its directors to avoid incurring such expenditure.

(2) Where a company enters into any transaction pursuant to subsection (1), any liability falling on any person arising from any such transaction shall be discharged by him within six months from the date on which it was incurred.

(3) A person who contravenes subsection (2) shall be guilty of an offence.".

Mr. S. Barrett

Is vouched expenditure defined in any way?

Mr. Leyden

It is not defined in any way, but I think it is regarded as set practice within the accountancy professions. In fact our own Dáil procedures would allow for that. Vouched expenditure would be regarded as standarised English in relation to the accounts.

Mr. O'Dea

If I could make one quick observation on this. We are still dealing with the section which prevents directors getting loans from their own companies. I do not know how expenditure expenses that are provided in return for work done on behalf of the company, can be considered to be a loan, which is repayable. Somebody is getting expenses for work which they are supposed to do properly as an officer of the company and on behalf of the company. It does not seem that this falls into the category of loan, but it is just a minor point but it is an observation I thought I would make.

Amendment agreed to.

Mr. Leyden

I move amendment No. 41:

In page 32, before section 32, to insert the following new section:

"36.—Section 31 shall not prohibit a company from making any loan or quasi-loan or entering into any credit transaction as creditor for any person if—

(a) the company enters into the transaction concerned in the ordinary course of its business; and

(b) the value of the transaction is not greater, and the terms on which it is entered into are no more favourable, in respect of the person for whom the transaction is made, than that or those which—

(i) the company ordinarily offers, or

(ii) it is reasonable to expect the company to have offered,

to or in respect of a person of the same financial standing as that person but unconnected with the company.".

Amendment agreed to.

Amendment No. 42 not moved.

Sections 32 and 33 deleted.